The Dow Jones and Standard & Poor’s 500 indexes reached record highs on Thursday, having completely erased the losses since the stock market’s last peak, in 2007. But instead of cheering, we should be very afraid.

Over the last 13 years, the stock market has twice crashed and touched off a recession: American households lost $5 trillion in the 2000 dot-com bust and more than $7 trillion in the 2007 housing crash. Sooner or later — within a few years, I predict — this latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains, will explode, too.

I’m not certain I agree with all of it — his political prescriptions towards the end seem especially suspect — but it is absolutely worth a read.

7 comments to David Stockman’s “Sundown in America”

I don’t agree with all of his policy prescriptions near the end, but I do agree with some of them, as well as with his description of where we are, how we got here, and what the ultimate result is going to be. I was never a huge fan of Stockman (he was always too much into static revenue analysis and too dismissive of the stimulative and revenue-enhancing effects of tax cuts), but his heart is in the right place and his analysis seems spot on. Which means that it will be completely ignored, of course, since no one with any power to change things has any incentive to do so.

I thought DS was too harsh on Reagan and the supply-siders. Given the realities of where Reagan was in the 80s, cutting high marginal rates when he did was a good move. But as Laird says, much of the analysis is accurate. It is a frightening situation. One possible saviour for the US economy is the current move towards dirt-cheap gas, a revival of parts of the manufacturing base, etc. But the overhang of debt, unfunded obligations and so on, remains a massive problem, as it does for much of the West.

No wonder the price of gold, despite the odd correction, remains high.

As for Reagan – what he did with taxes was correct (and got more revenue – not less revenue) the real failure was (as David Stockman knows) the failure to rollback the entitlement state.

But was that a personal failure – or what it a structural failure?

Can an entitlement state be rolled back.

Can such “entitlements” (once granted) be prevented from growing like cancers?

If the answer is “no” then the fate of the United States was sealed in November 1964 – when Barry Goldwater lost and (in the following few years) the entitlement state (although pensions already existed) was established.

The United States might have survived the burden of the general government pension (“Social Security”) system (after all a third of the country is owned by the government – and could be sold to give the elderly something in return for all those “contributions” they have paid – and their are various reform plans….) but all the “Great Society” stuff? Could the United States really survive all that?

Not likely – not in the long term.

So it may be that Barack Obama is not the destroyer of the United States – he is just bringing forward a death that was going to happen anyway.

Excerpt from the article (which includes links to a video pastiche and also to an article, “Flying High,” by Mr. Schiff from 4/1/13):

Bloomberg’s Jeff Kearns, whose support of Fed policy has earned him regular taps at Ben Bernanke’s televised press conferences, provided the most common mainstream dismissal of Stockman: “His warning that the Federal Reserve’s quantitative easing is steering the world’s largest economy toward a crash is at odds with nine quarters of job growth, record stock prices and unprecedented corporate earnings.” This “he must be wrong because things look good now” position supposes that economics can’t be understood or predicted, only observed. I received very similar treatment back in 2006 and 2007 when I tried to tell the mainstream that the real estate market was a house of cards. How could it be bad, they said, if it goes up every year?

Despite his misalignment with the Republican hierarchy, the Left has an even greater revulsion for Stockman. Since the crisis, he has become perhaps the most respected figure (with the possible exception of Alan Meltzer) to take the position that a system based on fiat currency is doomed. Those who most visibly argue these points, like Ron and Rand Paul, and myself, come from the libertarian movement.

Who Are We?

The Samizdata people are a bunch of sinister and heavily armed globalist illuminati who seek to infect the entire world with the values of personal liberty and several property. Amongst our many crimes is a sense of humour and the intermittent use of British spelling.